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Avenue Supermarts stock tanks 11.04% after Q3 earnings disappoint

The stock closed 11.04% or 173 pts lower at 1,395 on the BSE. The large cap stock lost 182 points to hit a new intra day low of Rs 1,386.05 compared to the previous close of Rs 1,568.95 on BSE.

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Avenue Supermarts stock tanks 11.04% after Q3 earnings disappoint

The Avenue Supermarts stock closed lower today after the December quarter earnings of the supermarket chain D-Mart owner failed to cheer investors. Bearish outlook for the stock by brokerages also led to selling pressure on the stock. The firm reported a 2.1 per cent rise in its net profit to Rs 257 crore for the December 2018 quarter compared to net profit of Rs 252 crore in the corresponding quarter a year ago.

The stock closed 11.04% or 173 pts lower at 1,395 on the BSE.

The large cap stock lost 182 points to hit a new intra day low of Rs 1,386.05 compared to the previous close of Rs 1,568.95 on BSE.

On NSE, shares of the company tumbled 11.30 per cent or 177.65 points to Rs 1,394 level. The stock closed below its 50 day and 200 day moving averages of 1,552 and 1,496 respectively.

In terms of equity volume, 4.15 lakh shares of the company were traded on BSE and over 36 lakh shares changed hands at NSE during the day.

The company posted a 36% rise in expenses to Rs 5,065 crore.

The company's revenue from operations in the quarter under review stood at Rs 5,451 crore, up 33.2 per cent, compared with Rs 4,094 crore in the year-ago period.

According to JM Financial Institutional Securities, 3QFY19 turned out to be another disappointing quarter for DMart.

While the gross margin impact of its now-known strategy of driving higher throughout its stores by lowering prices across categories has been built into forecasts, the disappointment this time round was led by a surprisingly sharp surge in 'other expenses' (45 per cent), it said.

"DMart's other expenses have rarely grown at a significantly faster clip versus sales growth in the past," it added.

Meanwhile, brokerages turned bearish on the outlook for the stock.

Citi cut price target to Rs 1,190 from Rs 1,255 following the subdued trend with continuing disappointment

 The brokerage maintained "Sell call at current valuations; incrementally more challenging store economics" and said long-term eCommerce impact are key issues for the stock going ahead.

Jefferies said gross margin dip of 170 bps led by company's price cuts, but still raise price target to Rs Rs 1,420 from Rs 1,375 citing management's strong execution, focus on market share gains.

Six of 17 brokerages rate the stock "buy" or higher, one "hold" and ten "sell" or lower, according to analysts' recommendations tracked by Reuters.

Kotak Institutional Equities has maintained its sell call with a target price of Rs 915 saying Q3 margins disappoint again. It healthy revenue growth partly driven by price cuts  and margin disappointment driven once again by low pricing. The competitive intensity for the company is high, though recent regulations provide momentary relief.

Brokerage Motilal Oswal said margin pressures in Q3 remained evident for the company. Rich valuations restricted re-rating of the stock. The brokerage has maintained a sell call with a target price of Rs 1,400.

Edelweiss has retained reduce call on the stock with a target price of Rs 1,300 and said it sees increasing competition to make incremental margin expansion difficult. Also store addition pace is seen slower than expected.

Credit Suisse has given a target price of Rs 1,150 on the stock. It said Q3 earnings were another major miss, now 2 in a row. The firm will struggle to expand or even maintain margins. Heavy discounting led gross margin to fall by 170 bps on an year-on-year (yoy) basis.

Most worrying is pace of new store addition; down 10% yoy in nine months of FY19.  It cut FY 19 earnings per share estimates by 7%.

Edited by Aseem Thapliyal

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